MM Insurance News 2/23/18

NOTEWORTHY NEW RULINGS

FOURTH CIRCUIT Jurisdiction/”Direct Actions”/Bad Faith (NC)

The Fourth Circuit has sustained a North Carolina District Court's declaration that an insurer did not violate N.C. Gen. State. § 58 63 15(11) in contesting the insured's claim for UIM benefits. In Elliott v. American States Insurance Company, No. 17 1421 (4th Cir. Feb. 20, 2018), the Court of Appeals rejected the insured's jurisdictional argument that American States was late in removing this case to federal court because the time for removal began to run from the date that the suit was received by the North Carolina Insurance Commissioner. Notwithstanding the insured’s argument that the Insurance Commissioner was a "registered agent" for American States, the Fourth Circuit ruled that the Commissioner was only the insurer’s statutory agent for receiving service of process and other legal notices. The court also rejected the insured's argument that her lawsuit was a "direct action" within the scope of 28 USC § 1332(c)(1) which states that an insurer would be considered as having the same citizenship as its insured "in any direct action against the insurer of a policy or contract of liability insurance..." The Fourth Circuit admitted that it had not yet considered this issue but agreed with the prevailing view among the federal circuits that a “direct action” is not a suit between the insurer and its policyholder but rather a case in which a tort claimant sues a liability insurer directly and the insurer is obliged to stand in the shoes f its policyholder in resisting the claim. Further, the Fourth Circuit ruled that the insured's bad faith claims had properly been dismissed as the insurer’s obligations did not become "reasonably clear" for quite a long time, nor was American States liable for obliging its insured to bring suit in order to recover benefits under the policy.

TENTH CIRCUIT TCPA/”Damages”/Public Policy (CO)

The Tenth Circuit has affirmed a Colorado District Court’s ruling that the $500 statutory damages that consumers available for violations of the Telephone Consumer Protection Act are penalties and not “damages” insurable under its liability policies. In Ace-American Ins. Co. v. Dish Network, LLC, No. 17-1140 (10th Circ. Feb. 21, 2018), the Court of Appeals ruled that the claimed damages are penal in nature and would, in any event, be uninsurable as a matter of public policy.

CONNECTICUT First Party/Crumbling Foundation Claims

The growing consensus among Connecticut's federal judges that homeowners are not entitled to "collapse" coverage for "crumbling foundation” claims has been bolstered in the last few days by two new rulings. In Zamichiei v. CSAA Fire & Cas. Ins. Co., No. 16 0739 (D. Conn. Feb. 20, 2018) , Judge Bolden ruled that the progressive deterioration of the insured’s foundation due to a chemical reaction that caused the concrete to crack did not involved an "abrupt falling down or caving in of a building" as required by the "collapse" coverage provisions of the policy. Judge Bolden rejected the insured's argument that the cracking and deterioration were merely "manifestations of a physical loss that is occurring." In keeping with several recent similar opinions from the federal district court in Connecticut, Judge Bolden declined to find any ambiguity in this language and declared that the gradual deterioration of the property was not "abrupt." The District Court also rejected the insured's alterative argument that the claimed chemical reaction constituted a "risk of direct physical loss to the property." The court ruled that the chemical reaction itself could not constitute a direct physical loss as there must be some physical manifestation in order to trigger coverage. Judge Bolden ruled that a loss "can be the result of an originating chemical reaction but it cannot be the originating chemical reaction itself absent any physical manifestation

In Mazzarella v. AMICA Mutual Inc. Co., No. 17 598 (D. Conn. Feb. 6, 2018), Judge Underhill rejected the insured’s argument that the alleged oxidation of the concrete was itself is a direct physical loss. As with England v. AMICA, Judge Underhill declared that a loss "includes perceptible harms that manifest as a consequence of triggering events – but does not include the triggering harms themselves." In any event, the court found that any covered direct physical loss would have been excluded as involving "deterioration." Further, the court held that the claim was subject to an exclusion for water below the surface of the ground that exerts pressure on a building's foundation or other structure. Having found that the claims were not covered, the court also entered judgment, dismissing the insured's bad faith claims.

ILLINOIS Additional Insured/Construction Claims

The Appellate Court has ruled in Hastings Mutual Ins. Co. v. Blinderman Construction Co. 2017 IL App (1st) 162234. (Ill. App. Feb 8 2018) that trial court erred that a trial court erred in granting summary judgment to the subcontractor's insurer in an additional insurance/construction dispute with respect to whether the putative additional insurance liability arose out of the actions of the named insured. Despite the fact that there were no allegations at all in the underlying lawsuit with respect to the conduct of the named insured, the First District ruled that the absence of such allegations did not satisfy the insurer's burden of proving that the injury occurred through no fault of its insured.

OTHER DEVELOPMENTS OF NOTE

* * *Inside the Insurance Industry * * *

The Hartford is acquiring the renewal rights for Foremost Insurance branded small commercial lines business from Farmers. Meanwhile, Mapfre’s consolidation strategy continues as it relinquishes its business in Indiana, Kentucky and Tennessee to Safeco. Aspen Re has announced that it will be closing its U.S. property claims unit in Bermuda.

* * * IBNR Dept. * *

Intel revealed in a new SEC filing that it is now facing 30 putative class action suits and two securities actions arising out the Spectre and CPCU security flaws.